The Unofficial AAR Blog

The AAR Blog is an open online forum created by the AAR Digital Rights Committee to educate the membership on all aspects of and issues surrounding the emerging digital publishing marketplace.

This blog does not accept comments, but we encourage you to discuss issues raised here to @Digitar on Twitter.

All blog posts appearing in the AAR Blog, as well as the contents within the links provided, reflect the views of their individual authors and do not reflect the views or position of the Association of Author's Representatives

About a year ago I wrote a piece for this blog titled… "eBooks and profitability– What we’ve always said and publishers have always denied." It was a reaction to a comment from a Harper Collins shareholder meeting that made the point that an e-book sale is more profitable to the publisher than a hardcover sale. In great part that is true because the author’s share of e-book revenue is smaller than it is on a hardcover sale.

As anyone who knows publishing knows, the e-book royalty rate has been a point of contention between authors/agents and publishers for years now, and it seemed to me that highlighting on this blog the fact that Brian Murray of Harper made that statement was an important bit of information in the ongoing discussion for the AAR member agents for whom the blog is intended.

But a few weeks ago I noticed that several bloggers and journalists have pointed to my blog post and used it to help bolster an argument that seems to be saying, in effect, the Hachette-Amazon standoff is the publishers’ own damned fault. If they had paid authors more, the argument seems to say, then Amazon couldn’t be trying to grab that piece of the pie.

That is a naïve and absurd argument and I hate to see my name connected with anything saying it.

My feelings on the e-book royalty issues are clear; but the royalty rate on e-book sales are only part of the way authors are compensated by publishers. Depending on the many variables of each publication effort (i.e. the percentage of sales in each of the print and digital formats and the pricing of those editions) and the terms of the deal made with a publisher (most significant for determining profitability: the advance), the e-book royalty rate may be important or may have no impact at all. The publishing margin on copies sold in one format looked at in isolation tells very little about how much margin a publisher is making overall on a title. Nor does it tell anything about an author’s overall compensation for that work. And it doesn't at all factor in the many additional investments a publisher makes in publishing a book that contribute to its success.

(On a related but side note, one author recently pointed to my post as his rationale for self publishing. That may have been right for him, I don't know the details; but the decision to self or traditionally publish should be based on a whole lot more than just the e-book royalty rate. For the financial reasons mentioned above and certainly for the forms of career growth and support that an effective publication effort provides.)

The Amazon - Hachette issue and the pain it is inflicting on authors has nothing to do with the royalty publishers pay authors, except for the long-term obvious truth that the publishers' profitability directly impacts what they can pay to authors and the investment that they can make in authors' careers going forward.

There has been an awful lot of talk recently (and several million dollars invested, I imagine) concerning a subscription business model for publishing. The intent is for someone to create "the Netflix of books," (I'll call it NFFB) which several different start-ups are claiming title to.

The question for us as agents, of course, like in everything we do: Is such a thing good for our clients, the authors?

I frankly don't see how it can be.

I think it's pretty obvious: Let's say a consumer can buy access to all the books they can read in the course of a month for, say, $10. That's the price point that seems to be the 'sweet spot' at the moment. No one is charging more than that for a subscription service, and it's hard to imagine in fact that the price won't drop as competition mounts, as it has done at Netflix and virtually every other digital subscription business.

The same $10 can buy you one e-book. Or fewer than one trade paperback. Or less than half a hardcover.

I have heard (but have not yet seen on royalty statements) that publishers who are participating in these programs are being paid for each loan (and are they technically loans or purchases?) as if it had been an e-book purchase, and that they are in turn paying authors the full digital royalty that would be due if the subscription copy had actually been bought at retail. If that's true, in the short term, no terrible damage has been done to our clients. In fact, it might well be a plus. More consumers being drawn into the book marketplace thanks to the lower pricing model. And the publisher and the author get paid as if the book had been bought at full e-book price. Enticing...

But how can anyone believe that this model is sustainable for the long term? If a customer reads more than one book a month (or maybe two if the books are low priced), the subscription service loses money. And if that customer is not going to read more than one book a month-- then why join NFFB? There's only one way this works: the 'gym membership' phenomenon: the majority of people who sign up and pay their dues don't use the service much (in this case, an average of less than one book a month) and their negative usage is more than the positive usage by the power readers. If so, the service makes money in the aggregate.

So it seems to me that, sure-- maybe NFFB will bring in some new customers who think that they SHOULD be reading and would like to read more. They pay their $10 a month and buy three books a year. On those customers, the service has made money and if they can sucker in enough of those people their model has worked. The customer has gotten $30 worth of books for $120. But at some point the consumers drop out when they realize how little they are getting. Maybe it takes a year, maybe two, but if they are spending for a service that they don't use enough, at some point they will wise up. In the gym membership business the consumer base, seemingly, never ends: not only does virtually EVERYBODY want to get fit each January... the same people often re-sign year after year, or every other year, hoping that this will be the year they stick with it.

But is the same thing true of readers? This is what really scares me about this model. I've been in the business quite a long time, as have most of you in the AAR. And I think it's profoundly naive to believe that the market of readers in this country is endless. The reading of book-length material has always been one that has a relatively small and intensely devoted customer base, and in particular when compared to the true mass market media businesses: movies, television, music. We all know this: we are THRILLED when a book sells a hundred thousand copies. In those other businesses, executives would lose their heads for sales at that level. Books are simply not a true 'mass' business.

This industry has always been sustained by the relatively small percentage of people who read new books, bolstered by the occasional phenomenon that brings in people who don't normally read books (50 Shades, Harry Potter, Hunger Games etc.) and the deep backlist full of the gems that live forever. It seems to me that this model gives the limited number of customers who buy A LOT of books the ability to do so at a staggeringly reduced cost. Good for them, sure... and for as long as the business model stays the way it's structured now, I guess it could be good for authors and publishers. But how can we trust that the model will stay the way it is now? What happens when a huge percentage of power readers switch over to NFFB and read two, three or five books a month the way that they do now? Those additional sales come out of the retail marketplace, and eat into the profit margin of NFFB. So again, in order to believe this is sustainable you have to believe that either 1) NFFB will continue to grow its customer base indefinitely, making up for the losses on power readers with more and more January gym rats; or, if that's unsustainable 2) they will stop paying publishers full price and then, therefore, publishers will pay authors a lower royalty per read. At that point, either the publishers agree to a new, lower fee structure, or NFFB closes its doors and all their customers are left hanging and angry-- likely to blame publishers and authors for being greedy, which seems to be the default marketplace mood at the moment.

Or I guess there is a third possibility. One of these services gets enough of a market share that Wall Street (or a company with Wall Street money) keeps it operating without it needing to earn a profit. We know how well THAT has served the competitive market for books.

And yes, I know-- NFFB would be good for consumers. And what's good for consumers is always good for business. Isn't that what everyone in the know says? Particularly Wall Street?

Well, I don't buy it. A $99 round-trip ticket New York-Rome would sure be good for consumers. As would a $15 main course at The Four Seasons and a $45 pair of Manolo Blahnik's. But those things aren't happening.

Why? For the same reason $.99 e-book titles are selling fewer copies than THE GOLDFINCH or INSURGENT or THE FAULT IN OUR STARS or SYCAMORE ROW at seven, eight, nine, ten times the price. Because quality books are worth paying for. Consumers care more about the time it's going to take to read a book than about the price they have to pay for it. They want quality, they want sure things, they want an experience that is going to be a fulfilling one. They want to spend their precious time reading the books that they want to read-- for whatever reason. And they are willing to spend more for them.

And also because good things cost more to produce. Yes, we all know that a digital copy costs virtually nothing. But I'm not going to rehash the argument about all the effort and expense it took to get a book to the point that it is ready to be downloaded and/or bought in a retail store. Right now I'll only mention one: the year or two or ten that it took a single creative individual to write it. That author put a huge investment into their own work. Risking their ability to profit from that work on an unsustainable business model seems reckless to me.

We need to protect our client's ability to earn a living from the work that they do, and I don't see how this NFFB model is going to help. In the best of worlds, this model means that most of the income will be coming in great part from people who are NOT reading the books but paying for a service they're not using. Or by investors betting on the misguided belief that the market of readers is endless if only prices were lower. I would love to believe the selling point: that authors' incomes will be bolstered by the massive numbers of new readers enticed into the marketplace by these services. But until there's some evidence, I think the risk is higher than the possible reward. We have had enough trouble keeping the market strong with the downward pressure on prices from e-books and mass retailers. Do we need to throw this dangerous model into the mix?

As we embark on 2014 there are questions I find myself asking and, through speaking with other agents on the phone and at the AAR committee meetings, it seems this is a growing concern.

How do we monitor and audit e-book royalties?

Now that the judges have laid down their decisions and both the Agency Pricing Model and the List Pricing Model are allowed for pricing e-books, the same book can be sold at different prices with different pricing structures at the same time.

As most publishers report e-book sales on net revenue, we have no way of knowing what structures are being used. With price promotions rampant as a way to promote e-books (something I push for with my books), we do not even know the different prices each book was sold at during a given royalty period.

How do we unravel this tangle to be able to analyze our authors' royalty statements and be sure that all sales were reported correctly? Do the publishers even know they have accurate information with the reports they are receiving from their vendors? Unlike days of old there are no Reconciliations To Print because there is no need to do print runs of an e-book.

While we as agents do not yet have the answers, it was encouraging to hear from other members of the AAR that we are asking the questions. The Royalty Committee is meeting with publishers to make the case for increased transparency in their reporting of authors' royalties -- across all formats -- as well as improved statements, and will be canvassing publishers to understand how they account for and report subscription model royalties. The Contracts Committee is investigating how various boilerplate clauses are involved in this issue, and if there is anything that needs to be brought to the attention of the membership. The International Rights Committee is looking at how our structures will then translate around the world.. The Digital Rights Committee along with the Programming Committee will be looking at understanding the ups and downs of e-sales through metadata (see evening program in March) as well as liaising with the Royalties Committee on the newest animal - the subscription model.

It is times like these where the agenting community is vital because, with our extensive work with a myriad of publishers worldwide, we have a unique and useful perspective.

I look forward to exploring these questions and hopefully finding solutions as the year progresses. But most of all, I appreciate knowing that I am not alone in the quest to make sure authors are the best served and informed that they can be.

I love to binge - even though I did not refer to it this way until recently.

Yes I read all of Nancy Drew, Foundation, Lord of the Rings, Earth's Children, Harry Potter etc... When I found an author I fell in love with, I would be sure to buy more of his/her books such as my large collection of Margaret Attwood's books on my shelves. Why not? You reduce risk that you are picking up something you won't enjoy. I would watch the Star Trek & M*A*S*H marathons (dating myself here) but these demanded an appointment commitment that became harder as life got in the way. I then discovered NetFlix and took TV binging to a whole other level. My first venture was when I had missed a few episodes of Alias (those pesky toddlers demanding my attention) and I suddenly had no idea what was going on. By waiting until the end of the season, I could get all of the DVD's and hibernate watching episode after episode until the wee hours of the morning to my spouse's distress. Then came the literally LOST weekend of my 24 hour non stop initiation into the Island. Since then I have discovered, Mad Men & Downton Abbey during my down times in the summer. Then Netflix took it to another level and decided to release the whole season of House of Cards at the same time. This seemed like episodic TV suicide but was tailor made for viewers like me and made the show an instant success.

Why mention this on a publishing blog to Agents? Because this is more and more what readers are looking for. Look at WOOL or FIFTY SHADES. I would even suggest that this is what we as readers have always wanted. Places like Open Road, Kindle and Untreed Reads are taking advantage of a reader's desire to grab all of an author's backlist once they have discovered their writing by putting up large numbers of backlist titles of beloved authors including essays and Short stories. Why not? In the e-world, size of the content doesn't matter.

What about frontlist? How should this change the way we sell and publish new authors? Should we be looking to have our authors write multiple books and then selling them all at once for simultaneous publication? I can see a myriad of problems with that construct. What can we learn with what is being done in other media forms to take advantage of our binging culture who devours and then moves on to another conquest? If you have thoughts or comments please send them to our Twitter handle @digitaar

"Brand yourself" has become the first commandment of book publishing. Social media is the tool that makes this happen. And photos can be the fastest way to attract readers' attention. But one downside to using those images is this: All those photos can repel just as often as they appeal. http://www.hw.ac.uk/news-events/news/sharing-photographs-facebook-could-damage-13069.htm

This news according to a new report from Bowker....up from 39% in 2011, the first year online retail exceeded bricks and mortar sales. (Online book retail includes but is not exclusive to ebook.) A significant increase to be sure, but a 5% increase in the typically lightening fast growth of the digital market hardly seems shocking.... Read more in the attached piece-explaining the difference between the number of readers who say they buy ebooks and the income publishers report taking in from those sales....

'[Jeff Bezos] favors a nimble, loosely organized company in which "two-pizza teams" execute important corporate tasks, because a work group requiring three pizzas over a lunch meeting is inherently too cumbersome. And he often requires employees pitching new ideas to write mock news releases for their product's imagined launch, a way of focusing their minds on what will most excite customers." This piece in the Washington Post yesterday lacked the usual blind reverence the media seems to have toward Jeff Bezos. Measuring a meeting's success by the amount of pizza ordered is a new innovation for sure....

First, of course, it's good news that WashPo will live. But the news, rather than being celebrated, has been greeted with a mixture of confusion and "of course" among book industry people I've spoken with. Naturally, any Amazon news shakes up most of us. This comes on the heels of John Henry, owner of the Boston Red Sox, acquiring the Boston Globe. That transaction makes more immediate sense-a Boston institution keeping a fellow Boston institution alive. The WSJ points out that Bezos valued papers enough to make them available in the earliest Kindles (article attached) : hmm, really, was that what it was about-or was it good business to engage customers in more than one media on his devise? Yet, one at first thinks, surely this move is an indulgence rather than a business decision. Could Bezos care that deeply about the dying newspaper industry? Yeah, the Bezos acquisition is puzzling at first, but then the "of course" enters the picture. What does it actually mean that Bezos, not Amazon, has made the purchase?"Probably that it won't take away from his already unprofitable bottom line: "of course." And saving a newspaper, old technology being rescued by new technology, is a pretty good PR move: damn good. He may be stretching or gutting, depending on your outlook, one long-standing industry, but now he is rescuing another. Good PR is always good business.

You may all have seen an article in today’s Publisher’s Lunch discussing HarperCollins’ recent investor’s meeting.

Included was this chart, explaining why e-book editions are more profitable to the publisher than hardcover editions.

This chart illustrates very clearly something that agents have been arguing for several years now, and that publishers have been saying just isn’t true: that their savings on printing, binding and distribution make up for the lower revenue from lower e-book prices– and that increased profitability is coming entirely off the backs of authors.

So, in other words, at these average price points, every time a hardcover sale is replaced by an e-book sale, the publisher makes $2.20 more per copy and the author makes $1.58 less. If the author made the same $4.20 royalty on the e-book sale as he/she would have on a hardcover, the publisher would STILL be making an improved profit of $6.28.

We have all heard the additional argument: that for a very large percentage of authors this is irrelevant since their advances don’t earn out– effectively raising their per unit royalty. That may be true, but it logically leads to what seems to me the most unfair aspect of all: That, therefore, the only authors that are financially punished by this system are the ones whose books perform very well. The ones whose books earn out. The big name authors and the celebrities whose books don’t perform to expectation are untouched; the author who gets a reasonable advance and whose book sells much better than expected are the ones who suffer the greatest loss.

The more interesting question, to this particular agent, is what happens when an author who doesn’t publish a book every twenty minutes makes the same decision. King is indispensable to his biggest fans. But it’s not exactly a torturous wait for his next book. He’s got a full length publication slated for a mere 3 months after this physical only title. Would be interesting to see this tried by an author who TRULY has a fan base waiting on pins and needles. Of course that makes the risk greater. But nothing ventured nothing gained.